Source: State Statistical Office-Business Tendencies Survey, BMI in the eurozone also suggest that business sentiment in Macedonia could suffer throughout the year. German business sentiment has been weakening in recent months. The Ifo Business Climate Index � a key leading indicator for the German economy � has dropped to ---.- in February, down from an average ---.- in Q---. The correlation between the Ifo business sentiment indi- cator and Macedonian gross fixed capital formation has broken down towards the end of ----, which we attribute to the impact of political risk on investor sentiment in Macedonia � domestic idiosyncratic factors have become a more significant variable in determining fixed investment growth. However, even with a return to positive investment growth in Q--- (-.- y-o-y), we still expect that falling business sentiment in Germany will place a limit on growing capital formation in Macedonia. ...Although lower input costs will help to offset the impact of lower selling prices on profit margins, growing supply and low prices will inevitably take their toll on business confidence and fixed investment. Combined with renewed concerns over political instability and Macedonia s EU convergence process, we maintain a conserva- tive outlook on fixed investment growth.
...We previously noted that improving labour market conditions and rising consumer confidence levels bode well for stronger private consumption growth (see Rising Confidence Will Consolidate Economic Recovery , June - ----). Macedonia s structurally high unemployment rate continued to come down, falling to --.- in Q---, from --.- in Q--- and --.- in Q---. ...Macedonia s structurally high unemployment rate continued to come down, falling to --.- in Q---, from --.- in Q--- and --.- in Q---. Although still high by regional standards, we continue to observe a growing formal sector economy, which paves the way to increased access to financial services, which in turn could mean higher household spending, especially on white goods , cars and housing. Robust household spending over the coming years underpins our forecasts for a return to strong economic growth after ----, when we see real GDP growth rising to -.- in ---- and -.- in ----, peaking at -.- in ----. ...Retail sector confidence indicators have strengthened further in the final quarter of ----, suggesting both an improvement in the current business situation and rising expectations for retail sales in six months. Brushing off political uncertainty and weakening economic sentiment in core eurozone countries, rising consumer confidence suggests that domestic demand will remain a key driver of growth in Macedonia s economy.
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